Global Minimum Tax and Its Impact on UK-Based Multinationals
The introduction of a global minimum corporate tax marks a significant shift in the international tax landscape. Spearheaded by the Organisation for Economic Co-operation and Development (OECD) and supported by over 140 countries, the framework aims to ensure that multinational corporations (MNCs) pay a minimum level of tax, regardless of where they operate. For UK-based multinationals, the implications of this agreement—particularly the 15% global minimum tax rate—are profound, impacting tax planning, investment strategies, and global competitiveness.
Understanding the Global Minimum Tax
The global minimum tax is part of the OECD’s two-pillar solution to address tax challenges arising from the digitalisation of the economy. Pillar Two introduces a minimum effective tax rate of 15% on profits earned by large multinationals with global revenues above €750 million. If a company pays less than this threshold in a low-tax jurisdiction, its home country can impose a “top-up” tax to make up the difference.
The UK has committed to implementing these rules, beginning with the “Income Inclusion Rule” (IIR) in 2024, followed by the “Undertaxed Profits Rule” (UTPR) in 2025. The UK government is also introducing a domestic minimum tax to ensure UK profits are taxed at or above the 15% rate.
Impact on UK-Based Multinationals
For UK-headquartered multinationals, the global minimum tax curtails the benefits of shifting profits to low-tax jurisdictions. Many companies have historically used tax havens or favourable regimes to reduce their global effective tax rates. With the new rules, those strategies are becoming less viable. Even if profits are booked in low-tax countries, the UK can now collect additional tax to bring the overall rate to 15%.
This shift is prompting UK multinationals to reassess their tax structures. While it may increase their global tax burden in the short term, it also reduces the incentive to move operations offshore for tax reasons. In theory, this could level the playing field and even encourage more domestic investment.
However, there are concerns about increased complexity and compliance costs. The rules are highly technical and require extensive data gathering and reporting. Smaller firms just above the revenue threshold may feel a disproportionate burden compared to larger peers. Moreover, tax departments must now consider a broader range of jurisdictions and scenarios when planning cross-border investments.
Competitive Position and Strategic Choices
UK-based MNCs may also face new challenges in competing with firms in jurisdictions that are slower to implement the rules or offer generous subsidies and incentives. While the global minimum tax aims to reduce harmful tax competition, it doesn’t eliminate it entirely. Some countries may respond by shifting from low tax rates to offering targeted tax credits or subsidies, which may not always be captured by the minimum tax calculations.
Additionally, some UK multinationals operating in sectors with volatile profits—like technology or pharmaceuticals—may face difficulties in meeting the annual compliance requirements or predicting their tax liabilities accurately under the new regime.
Conclusion
The global minimum tax is a game-changer for international taxation. For UK-based multinationals, it demands a fundamental reassessment of global tax strategy, balancing compliance with competitiveness. While it aims to foster fairness and reduce tax avoidance, its complexity and global rollout challenges mean that UK firms must stay agile and proactive in navigating the evolving tax landscape.
Published: 1st September 2025
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